Investing in China (onshore)

17 September 2026, 21:00 UTC Chief Investment Office GWM Investment Research

Capture Chinese equities’ upside via A-shares Investing in China (onshore) Authors: Chun Lai Wu, Head CIO Asia Asset Allocation, UBS AG Hong Kong Branch; Kasey Wang, CFA, Strategist, UBS AG Hong Kong Branch; Christy Yuen, Strategist, UBS AG Hong Kong Branch

• China's macroeconomic backdrop remains uneven, characterized by weak domestic demand and resilient exports.

• Additional policy support is likely to remain targeted toward strategic sectors, including advanced manufacturing, technology innovation, and industrial upgrading.

• We believe A-shares are a better place to potentially capture Chinese equities’ upside. We thus upgrade A- Source: UBS and GettyImages shares to Attractive and downgrade offshore Chinese equities to Neutral.

• We maintain our Attractive views on onshore high- dividend equities and high-grade credit.

Our view Table 1: China onshore asset preferences for CNY investors

Returns from Chinese equities have been diverging across sectors year to date, with the information technology and energy sectors in A-shares outperforming, and consumption-related sectors underperforming. The recently concluded earnings season reinforced this bifurcated growth backdrop, with strength concentrated in AI-linked technology, while consumer-facing sectors continued to grapple with weak demand and cautious spending trends.

China's economy continues to display a pronounced two- speed dynamic, with growth increasingly concentrated in technology, manufacturing, and export-oriented sectors while domestic demand remains subdued. August data reinforced this divergence. Industrial production accelerated, driven by equipment manufacturing and high- tech industries, while exports remained a key pillar of growth amid strong global demand for AI-related products. By contrast, the domestic economy has remained on a softer footing. Retail sales growth continued to lag expectations, fixed-asset investment remained weak, and labor market conditions showed little sign of a meaningful improvement. Inflation indicators have turned modestly firmer, suggesting some stabilization in pricing conditions, although not yet to a degree that would signal a broad-based recovery in domestic demand. Source: UBS, as of September 2026

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Fig. 1: China’s K-shaped growth divergence The policy backdrop remains broadly unchanged, with continues to widen policymakers prioritizing the quality of growth and long- term competitiveness over broad-based stimulus. Support continues to be directed toward strategic areas such as technological self-sufficiency, AI infrastructure, and broader industrial upgrading initiatives. While authorities remain committed to stabilizing the property market, recent signs of improvement have been largely confined to tier-one cities, with activity across lower-tier markets remaining subdued. Looking ahead, we expect any additional policy easing to remain measured and concentrated in sectors linked to AI, advanced manufacturing, and strategic infrastructure, while consumption-oriented sectors remain dependent on a more Source: WIND, UBS, as of 31 August 2026 sustained recovery in household demand.

Against this backdrop, we downgrade offshore Chinese equities to Neutral and upgrade China A-shares to Attractive, reflecting the noticeably stronger onshore Fig. 2: Inflation was slightly firmer in August earnings outlook for A-shares, and our preference for sectors benefiting from AI investment, industrial upgrading, and policy support over those reliant on a recovery in consumer demand. We retain an Attractive stance on onshore high-dividend equities for their defensive characteristics, resilient cash flows, and ability to provide portfolio stability.

Onshore high-grade credit bonds continue to provide appealing yield premiums, particularly as…